What is a Power of Attorney?

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Do any of the following people need to sign a power of attorney?

  • Mr. Jones lives alone, has no close family, and is scheduled for major surgery in a few weeks.
  • Ms. Smith has been diagnosed with Lou Gehrig's disease.
  • Mr. and Mrs. Adams will be out of the country for the next 6 months but have a house they need to sell.
  • Ms. Davis is single, runs a successful business, and has no medical or economic concerns.

The answer is yes. They all do. A power of attorney (POA) is a document that allows you to appoint a person or organization to manage your affairs if you become unable to do so. However, all POAs are not created equal.

Each type gives your attorney-in-fact (the person who will be making decisions on your behalf) a different level of control.

General Power of Attorney

A general power of attorney gives broad powers to a person or organization (known as an agent or attorney-in-fact) to act in your behalf. These powers include handling financial and business transactions, buying life insurance, settling claims, operating business interests, making gifts, and employing professional help. General power of attorney is an effective tool if you will be out of the country and need someone to handle certain matters, or when you are physically or mentally incapable of managing your affairs. A general power of attorney is often included in an estate plan to make sure someone can handle financial matters.

Special Power of Attorney

You can specify exactly what powers an agent may exercise by signing a special power of attorney. This is often used when one cannot handle certain affairs due to other commitments or health reasons. Selling property (personal and real), managing real estate, collecting debts, and handling business transactions are some of the common matters specified in a special power of attorney document.

Health Care Power of Attorney

A health care power of attorney grants your agent authority to make medical decisions for you if you are unconscious, mentally incompetent, or otherwise unable to make decisions on your own. While not the same thing as a living will, many states allow you to include your preference about being kept on life support. Some states will allow you to combine parts of the health care POA and living will into an advanced health care directive.

Durable Power of Attorney

Suppose you become mentally incompetent due to illness or accident while you have a power of attorney in effect. Will the document remain valid? To safeguard against any problems, you can sign a durable power of attorney. This is simply a general, special, or health care POA that has a durability provision to keep the current power of attorney in effect.

You might also sign a durable power of attorney to prepare for the possibility that you may become mentally incompetent due to illness or injury. Specify in the power of attorney that it cannot go into effect until a doctor certifies you as mentally incompetent. You may name a specific doctor who you wish to determine your competency, or require that two licensed physicians agree on your mental state.

Looking for Mr. Good Agent

Trust is a key factor when choosing an agent for your power of attorney. Whether the agent selected is a friend, relative, organization, or attorney, you need someone who will look out for your best interests, respect your wishes, and won't abuse the powers granted to him or her.

It is important for an agent to keep accurate records of all transactions done on your behalf and to provide you with periodic updates to keep you informed. If you are unable to review updates yourself, direct your agent to give an account to a third party.

As for legal liability, an agent is held responsible only for intentional misconduct, not for unknowingly doing something wrong. This protection is included in power of attorney documents to encourage people to accept agent responsibilities. Agents are not customarily compensated; most do it for free.

Should you, a friend, or relative suspect wrongdoing on the part of your agent, report the suspected abuse to a law enforcement agency and consult a lawyer.

Can Too Many Agents Spoil the Broth?

While you can appoint multiple agents, decide whether these agents must act jointly or separately in making decisions. Multiple agents can ensure more sound decisions, acting as checks and balances against one another. The downside is that multiple agents can disagree and one person's schedule can potentially delay important transactions or signings of legal documents.

If you appoint only one agent, have a backup. Agents can fall ill, be injured, or somehow be unable to serve when the time comes. A successor agent takes over power of attorney duties from the original agent, if needed.

Being of Sound Mind. . .

A power of attorney is valid only if you are mentally competent when you sign it and, in some cases, incompetent when it goes into effect. If you think your mental capability may be questioned, have a doctor verify it in writing. If your power of attorney doesn't specify requirements for determining mental competency, your agent will still need a written doctor's confirmation of your incompetence in order to do business on your behalf. A court may even be required to decide the competency issue in some circumstances.

Signing, Sealing, and Delivering a Power of Attorney

You must sign and notarize the original power of attorney document, and certify several copies. Banks and other businesses will not allow your agent to act on your behalf unless they receive a certified copy of the power of attorney.

Attorneys are unnecessary to execute a power of attorney. However, it may be wise to consult one for advice about the powers being granted, to provide counsel on your candidate agent, and to make sure your document meets all legal requirements.

Remember, you can revoke a power of attorney at any time. Simply notify your agent in writing and retreive all copies of your power of attorney. Notify any financial institutions and the County Clerk's office, if applicable, that your agent's power of attorney has been revoked.

Needing a power of attorney is almost as certain as death and taxes in everyone's life. Illness, injury, old age, or daily life commitments happen to everyone. It is important to understand what a power of attorney is and how it can assist in taking care of business, even when you can't.